Palo Alto Weekly

Palo Alto in no hurry to recoup Maybell loan

City Council agrees not to terminate its agreement with Palo Alto Housing Corporation

by Gennady Sheyner

Palo Alto's plan to bring an affordable-housing complex to Maybell Avenue may have dissolved on Election Day, but the city is in no rush to recoup the money it loaned to the developer.

The City Council on Monday voted unanimously not to terminate its $5.8 million loan to the Palo Alto Housing Corporation, a nonprofit that builds and manages affordable-housing complexes throughout the city. The Housing Corporation used the funds to purchase a 2.4-acre site at 567 Maybell Ave. and proposed 60 low-rent apartments for seniors and 12 single-family homes to be sold at market rate. The development received the council's unanimous approval in June but was shot down by voters in a referendum on Nov. 5.

With the election fresh on their minds, council members considered on Monday what to do about the loans it had made to the Housing Corporation. Their decision? Do nothing.

That was the recommendation from City Manager James Keene, who argued that affordable housing is still a critical need and that the Housing Corporation is the party best suited to address the issue. He dismissed alternative proposals from members of the public, some of whom argued that the city should buy the orchard site and develop it on its own.

The city has many other priorities for spending, including a shrinking but still sizable infrastructure backlog, he said, and staff has little expertise or desire to get into the development business.

"The city doesn't, in my view, have the money to buy this property, and it has had years of public process in exploring infrastructure investments and other needs underway that really should not be derailed by ... an ad hoc request to make a public investment," Keene said.

Council members agreed wholeheartedly.

"The City of Palo Alto has many strengths and lots of expertise, but we are not an affordable-housing agency," Councilwoman Gail Price said. "For us or for community members to assume that we can get involved in a protracted discussion and yield a development that really addressed affordable housing or senior affordable housing is, I believe, unrealistic."

By doing nothing, the council effectively agreed to stand by while the Housing Corporation looks for a market-rate developer who would buy the property. The Housing Corporation had bought the site for $15.6 million, outbidding at least five other would-be buyers. The agency ultimately benefited from its nonprofit status, which enabled the family selling the orchard to receive a tax write-off.

With Palo Alto's home values rising fast — by about 20 percent in the past year alone, according to staff — the city believes the property can now be sold for about $18.7 million. Once the property is sold, the city would be third in line to collect its loans (two other lenders, Low Income Investment Fund and the Local Initiative Support Corporation would be the first to collect, while Santa Clara County would be last). Any proceeds that remain could be applied to a different affordable-housing project.

Several Barron Park residents urged the council to work with the Housing Corporation to come up with a senior-housing project at the Maybell site that would be acceptable to the surrounding neighborhood.

But Candice Gonzalez, executive director of the Housing Corporation, said Monday the agency was already at the edge of what was financially feasible. The density of the project was necessary to secure state tax credits, she said. Even if the City Council were to agree to kick in a few million dollars to compensate for elimination of the lucrative market-rate homes, the agency would have trouble sustaining the cost of running the facility.

"We did not have a scaled-back alternative. There's just a lack of funds at the city, state and federal level," Gonzalez said.

The housing agency supported a staff proposal not to terminate the loan but to let the nonprofit proceed at its own pace in selling the property, which under the existing zoning could accommodate 34 to 46 housing units.

Had the council chosen to terminate the loan, it would have forced the Housing Corporation to immediately sell the property and pay the city back. Price and Councilwoman Liz Kniss both spoke in favor of allowing the nonprofit to explore other options. Councilman Marc Berman wished the Housing Corporation good luck in finding another site.

"The sooner you can find affordable housing somewhere else, the better off we all will be," Berman said.

Posted by Maybell critics got it all wrong, a resident of Barron Park
on Dec 20, 2013 at 9:17 pm

Surprise, surprise, the NIMBYs who claimed they were in favor of senior housing are going to get market rate housing with FAR higher traffic, school, and other impacts than the project they shot down in such ignorance.

Why, oh why, did so many voters fall for such uninformed nonsense propagated by the opponents of the Maybell project? Maybe because local news reporters don't actually do any investigations anymore, just chase headlines?

Posted by Critic, a resident of College Terrace
on Dec 20, 2013 at 9:46 pm

Through the campaign, I did not see an explanation as to why that site is a good one for seniors.

Now that there is perhaps less pressure to communicate campaign messages with every utterance, can someone describe this?

(I'm not asking if the city needs more senior or low cost housing, just why this is the right spot or a good spot specifically for seniors).

I ask because I do understand why it would be a good spot for families with school-age children.

Posted by noupzoning, a resident of Barron Park
on Dec 21, 2013 at 9:39 am

@Maybell Critics -- Uh, there is plenty of low income housing here already. So the NIMBY label doesn't stick. Residents have even asked the city council and staff to try to save the low income housing that is already here and prevent these units from converting to market rates.

Furthermore, the Maybell site is not a good site for seniors. But then we are just rehashing the same issues which the election settled, like it or not.

And it still doesn't make sense to claim that by upzoning the site there will be less density! That didn't fly either and still doesn't make sense!

Neighbors welcome that the site be developed under existing zoning. What a concept!

I support reprogramming the $5.8 million City loan on the Maybell property to help the residents of the Buena Vista Mobile Home Park to purchase the property and become homeowners in the City we all love. This would show a good faith effort to preserve and maintain the current level of low income housing stock, by saving the largest low income housing project in the City.

My second choice would be housing for families with disabled children.

I supported Measure D, but that's neither here nor there at this point. The voters have spoken: undo the rezoning for the affordable housing project. And so has the city council : the city will not assume an ownership stake in the property and PAHC is free to sell the property, pay off its debts and move on.

As for what happens next, I have my druthers, but the market will determine what goes in there. Competing real estate developers will calculate how to make the most off this valuable property and bid accordingly.

I'm interested but not overly anxious. I do believe there will be more impact on traffic and the schools than under PAHC's proposal, but the "nightmare scenarios" are just that. No one is going to build something truly awful at the Maybell/Clemo site. There's lots of money to be made there in residential real estate priced to the market. Why mess it up?

I can't imagine a developer wasting this opportunity to build high-end housing, whether condos, townhouses or single family homes. Unless, of course, a particular vision of what could be done with the property, like establish a community orchard, inspires one to outbid the field.